Premium Tax Credit Verification Audit

June 20th, 2017 No comments

The IRS has begun auditing taxpayers who purchased health insurance coverage through the Health Insurance Marketplace (also known as an exchange) and reported that they were eligible for a premium tax credit (PTC) when filing their Form 1040. The IRS audit letter (Form 14950) states that if the taxpayer did not retain the documentation requested by the IRS, s/he needs to contact the appropriate parties to obtain this information.

The information requested by the IRS includes: Read more…

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You Need to Update Your Beneficiaries

June 13th, 2017 No comments

Unfortunately, it seems that every tax season we learn that a client’s spouse passed away and there was no will. Perhaps the plan was to have this matter done at a later date.

Let us assure you that if you do not have a will (or some other form of estate planning), there is no better time than today to get started on your estate plan. You do not want to have your grieving spouse’s life to be further complicated financially and emotionally because no estate plan was in place. Spending a couple of hours thinking about your estate plan may help you avoid costly mistakes and unintended consequences. Topics of discussion you should consider having with a very good estate planning attorney are Read more…

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Know the Tax Rules If Considering In Vitro Fertilization

May 30th, 2017 No comments

In vitro fertilization (IVF) is an expensive medical procedure whereby an egg is fertilized by sperm in a test tube or elsewhere outside the body. An IVF procedure can be tax deductible as a medical expense subject to the same limitations as any other medical expense. The limitation is that such medical expenses are tax deductible to the extent they exceed 10 percent of the taxpayer’s adjusted gross income (AGI). By way of example, if a taxpayer’s adjusted gross income is $100,000 and the taxpayers incurs $12,000 of medical expenses, the taxpayer is allowed a tax deduction of $2,000 ($12,000 less a $10,000 limitation (10% times $100,000 equals $10,000, the limitation).

However, taxpayers have not been entitled to the IVF medical deduction when Read more…

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Business Owner Denied Repair and Maintenance Expenses

May 25th, 2017 No comments

It is important to learn from the mistakes of others. Detailed documentation of expenses is absolutely vital to sustain a tax deduction.

In a recent Tax Court case (Charles F. Schuetze, TC Memo 2017-74), an attorney formed an LLC with another person to purchase a bed & breakfast property located in Indiana in 2007. It was the former residence of Larry Bird. Due to mounting losses, the B&B was closed in 2010 and put up for sale. The LLC’s losses totaled more than $250,000 and included repairs and maintenance deductions.

The IRS contended that Schuetze used the B&B for personal use. The tax rule is that if a taxpayer uses a residence for more than the greater of 14 days or 10% of the number of days during the tax year that the property is rented at a fair rental value, it is used for personal use and tax deductions are limited. The court noted that a pass-through entity, such as the LLC, is considered to have made personal use of a dwelling unit on any day on which any beneficial owner made personal use of the dwelling.

The taxpayer argued that the days he spent at the B&B were mostly to perform repairs and maintain the property. If a taxpayer is engaged in repairs and maintenance of the dwelling unit substantially full time on any day, that day will not constitute personal use of the unit. When determining if a taxpayer can exclude the time spent at the dwelling as not constituting personal use, the IRS considers Read more…

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IRS Imposes Penalty for Claiming Home Office

May 16th, 2017 No comments

In the Tax Court case of Edgar Brown, several claimed expenses were addressed by the court. We will look at two of them, unreimbursed employee expenses and the home office deductions that were claimed by the taxpayer. The court’s finding was that it agreed with the IRS’s disallowance of these deductions. Let’s look at why the taxpayer lost.

Mr. Brown was a financial services professional who claimed unreimbursed automobile, tolls, parking and publication expenses that were denied by the IRS. To claim unreimbursed employee expenses, the employee must have been Read more…

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Legitimate Business Loss or Disallowed Hobby Loss

May 9th, 2017 No comments

As a new business owner, you may find that it takes a couple of years to become established in your market place and to make a profit. While you are operating at a loss and wondering if and when your business will eventually become profitable to pay your bills, you seemingly have the comfort of knowing that your losses are tax deductible and can offset other sources of income. Or do you?

Did you know that if a business fails to generate profits in at least two years in a five-year consecutive period, the IRS presumption is that Read more…

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PA 529 Plan Contributions – Know the Rules

May 2nd, 2017 No comments

Do you want to reduce your PA personal income taxes?

As a PA resident, your contributions to a 529 account may be tax deductible from your PA state income tax. Notice the use of the word “may” versus “are” tax deductible. Many taxpayers are under the misconception Read more…

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Penalty for Failure to Review Your Form 1040

April 25th, 2017 No comments

The IRS requires that as part of a professionally prepared tax return that the taxpayer review his/her return before it is e-filed. This review process is important because the taxpayer is signing under penalties of perjury that the return and accompanying schedules and statements were examined by the taxpayer and to the best of the taxpayer’s knowledge and belief, that the return is true, correct and accurately lists all amounts and sources of income received during the tax year. It also states that the preparer is preparing the return based on the information received from the taxpayer.

In the tax court case of John J. Sweeney and Donna L. Sweeney v. Commissioner, TC Summary Opinion 2016-32, the taxpayers conceded that they failed to include all of their (unreported) income on Schedule C of their return, but contested the imposition of the IRS 20% accuracy-related penalty.

The IRS audit exam resulted because third-party insurance company payers reported more income on Form-MISC than the taxpayer reported on Sch. C as insurance commission income.

The IRS and the court found the taxpayer’s numerous arguments frivolous and without merit. The taxpayer acknowledged that he had received the unreported income and could offer no explanation as to how he arrived at the amount of income shown on his Sch. C. In fact, the taxpayer acknowledged that the reported gross receipts “couldn’t possibly be right.”

The taxpayers argued Read more…

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Need To Make an IRS Tax Payment

April 18th, 2017 No comments

Since today is the due date for filing 2016 Form 1040, some taxpayers are going to find themselves worrying about filing their returns and paying the balance owed on 2016 taxes. Let’s attempt to reduce some of that stress.

First, if an individual files IRS Form 4868, he can receive an automatic extension of time to file his 2016 tax return until October 16, 2017. The filing of this Form 4868 provides the taxpayer an additional six months to file his 2016 tax return without incurring late filing penalties.

However, the IRS does not grant extensions of time to remit the taxes due. The remaining tax liability will be subject to late payment penalties if not paid by April 18. In other words, you can file your return after April 18 if an extension is timely filed, but all taxes are due April 18. If you cannot pay the full amount due, you should Read more…

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Missing a W2 . . . Try These Helpful Hints

April 11th, 2017 No comments

Most taxpayers got their W-2 Forms by the end of January. Form W-2, Wage and Tax Statement, shows the income and taxes withheld from an employee’s pay for the year. Taxpayers need it to file an accurate tax return.

If a taxpayer hasn’t received their form by mid-February, here’s what they should do: Read more…

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